Margins on loans against shares raised

Our Banking Bureau
29 December 2004

Mumbai: Reserve Bank of India (RBI) has raised margins for loans against shares to 50 per cent from 40 per cent with immediate effect.

The revised rate is applicable to all bank advances against shares, including initial public offers (IPO) and issue of guarantees.

The RBI also raised the minimum cash margin to 25 per cent, from 20 per cent.

The move, which is seen as an attempt to curb excessive speculation in the equity market by using bank funds, has come at a time when the market is on a continuous bull run.

This RBI directive reverses its earlier order of May 2004 when the margin in respect of advances against shares, financing of IPOs and issue of guarantees had been reduced to 40 per cent from 50 per cent, while the minimum cash margin was lowered to 20 per cent from 25 per cent.